State of East Africa Report 2016: Consolidating Misery? The political economy of inequalities

By Arthur Muliro, Society for International Development, amuliro@sidint.org

‘People do not eat GDP’: Even as the economies of EAC member states have been recording considerable growth rates, this growth has been accompanied by a growth in inequality in virtually all countries.

This is the one of the key observations of the State of East Africa Report 2016 published by the Society for International Development. GDP figures (with a regional annual average increase of 6% since 2011) tell the story of an economic expansion that has taken place in East Africa in the last few years alongside significant structural changes and greater sophistication in the countries’ economies. This GDP growth has generated optimism and greater confidence that the region is going places.

Are all citizens of East Africa perceiving or feeling the benefits of these stellar GDP growth figures registered in the region? In spite of the growth, the economic boom has not generated the jobs or prosperity for all that it was expected to. The levels of poverty, hunger and malnutrition in these countries still remain staggeringly high.

Building on previous reports, this State of East Africa Report examines the political economy of inequalities and highlights the relationship between politics and inequality. The report offers some hypotheses as to why inequalities persist and why efforts to address them are unlikely to be successful in the absence of a committed attempt to dismantle and recreate the institutions that distribute power and the networks that have emerged to extract benefits from them.

The report analyzes nine sectors divided across economic, social and political pillars, and for each of these sectors it asks questions about the EAC Member States’ performance in the fiscal, normative and ethical domains. The report explores some of the challenges that the region will need to face up to transform its economies successfully to ensure that the majority of citizens have an active stake in change processes of the day so as to benefit further from the ongoing integration processes. It also highlights some areas of possible intervention, as points of departure for policy conversation, keeping in mind that the complexity of these interventions will require a deeper analysis and broader conversation.

Executive summary

The past few years have seen the economies of the EAC member states grow by leaps and bounds, with the regional averaging some 6% annual GDP growth in the period since 2011. This is good news. Expanding economies in principle mean that there is growing economic activity taking place, an increased exchange in the volume and value of goods and services traded. These growth rates have been heralded as the proof that the region has finally made a structural shift in its economies, and have been held out as a harbinger of greater things to come. This optimism has been further buoyed by the potential emerging from the recent hydrocarbon discoveries and the extractive industries in general. The long-awaited renewal of dilapidated rail, road and port infrastructure and the race to construct new gas and oil pipelines to the region’s ports has also given a signal that the region is no longer doing business as it used to. Indeed, the ‘mix’ of the region’s economies suggests that there is a deeper and perhaps subtler set of changes taking place.

But even as the economies of the EAC have been growing, this growth has been accompanied by a growth in inequality in virtually all countries. Put bluntly, not all citizens of East Africa have seen or felt the benefits of these stellar GDP growth figures. If anything, for a growing number of East Africans, life has become – in recent years – a much harsher and harder enterprise. The economic boom has not generated the jobs that it was expected to and there is a growing frustration that perhaps these jobs will never materialize. For all the progress made in recent years, the levels of poverty, hunger and malnutrition in our countries are still staggeringly high and serve to underline the adage ‘you cannot eat GDP’.

The last State of East Africa Report highlighted the state of inequality in East Africa and sought to explore what future inequality might have in East Africa. Its title ‘One People, One Destiny – The Future of Inequality in East Africa’ interrogated the extent to which the fruits of economic growth were contributing to the stated vision of the EAC – that of ‘One People, One Destiny’. The report surmised:

‘Two powerful driving forces are shaping the future of inclusiveness and equity in East Africa. One is the inclusiveness of growth – a measure of how much the poorest East Africans are participating in generating economic growth. The second driving force is the degree of equity, which describes how the benefits of economic growth are shared among the region’s citizens, and particularly the share of income and wealth that accrues to the poorest East Africans’.

This State of East Africa Report seeks to build on the previous report and seeks to take the conversation a step further: It aims to explore and offer for reflection, some of the challenges that the region will need to face up to if it is to be able to successfully transform its economies to in order to drive up domestic demand, build and nurture local value-chains and improve the skills of its labour force in a virtuous process that reorganizes our institutions and processes to ensure that the majority of citizens have an active stake in change processes of the day.

Why political economy?

In focusing this report on examining the political economy of inequalities, we aim to shine a spotlight on the relationship between politics (domestic and regional) and inequality. To what extent are our political institutions linked to the persistence of poverty? What political factors affect the evolution of inequality and what are the effects of inequality on political choices and outcomes? Is there a relationship between our various identity formations and the manner in which public goods are provided? The report offers some hypotheses as to why inequalities persists and why efforts to address them (narrow the gap) are unlikely to be successful in the absence of a committed attempt to dismantle and recreate the institutions that distribute power and the networks that have emerged to extract benefits from them. It thus makes the argument that inequalities survive thanks to the structure of the institutions we have put in place and that it is only by reforming these institutions that we can truly address the challenges that inequalities generate.

As this report is about regional integration, the report also asks some questions as to whether the opportunities that this process presents will be helpful in supporting efforts to narrow present inequality gaps. The best answer we can give to this is a lukewarm ‘it depends’ – it depends on the choices that the leaders are willing to make; whether they are willing to take bold steps to reconfigure the institutional and power architecture to ensure that all citizens of the region benefit from integration as opposed to only a (small) section.

The report

This report analyzes nine sectors divided across three pillars: an economic pillar [Agriculture, Wages and Wage Policy], a social pillar [Education, Health, Housing and Shelter] and a political pillar [Justice, Security, Discrimination and Identities, Intergenerational Challenge]. In each of these sectors, the report asks questions that straddle an additional three domains:

The fiscal domain: Where do we get our resources from and how do we spend them?

The normative domain: What policy decisions are made (or not) and who benefits from these decisions?

The ethical domain: Whose narrative prevails and what instruments are used to weaken the moral core of society?

Eight key messages

There are eight key messages this report would like to convey. Whilst the majority of the messages focus on changes that need to take place at the national level, it is impossible to divorce the needed changes from the regional integration question. When we come together at the regional level, we do so with our individual country strengths and weaknesses and this impacts the regional negotiations as well as the potential of the collective EAC. These messages are:

The biggest task facing the state in East Africa is perhaps not so much that of pursuing ‘economic growth’ at any cost, but that of creating the foundations for lasting human development in the region. By reinforcing the livelihoods of each individual citizen, the potential for national and regional growth will be multiplied several times over. Individual citizens should be seen as allies and catalysts; not as enemies or ‘disruptive’ elements.

There is massive potential in the region crying out to be unleashed – trade barriers, poor infrastructure, insecurity, unfair judicial systems, low wages, discrimination, weak regulation etc. are undermining the potential that could be reaped if the region were to genuinely reform its institutions to make them more equitable, predictable and inclusive.

Our institutional arrangements at the national level are skewed in favour of the rich and powerful. Cosmetic changes and ‘make do’ adjustments are only delaying an inevitable internal crisis. The time to rethink the structure of power and economy is now.

The implicit social contract that has accompanied our states since their formation and independence needs to be rethought and renegotiated with a view to ensuring that the majority of the citizens get a fair return out of this bargain. It cannot be taken for granted.

Massive spending on ‘key’ infrastructure projects needs to factor in the broader public good at the outset and not as an afterthought. Current infrastructure developments are fruit of export-led strategies. Local economy growth and empowerment should be the focus of infrastructure development.

If inequalities continue to be consolidated, there is a strong possibility that future generations of East Africans will live worse lives than the current generation of East Africans – a ‘catastrophic convergence’ of politics, economy and environment does not bode well for the region. Any magnification of systemic challenges could overwhelm our response and resilience mechanisms. As such, there is an urgent need to invest in adaptation schemes that magnify potential gains from cooperation whilst minimizing conflicts.

East Africans need to undergo a thorough mindset shift to embrace the opportunities today that will enable them to survive in tomorrow’s world. The social habits of trust, cooperation and becoming truly ‘wananchi’ is long overdue. Furthermore, we need to shift from linear problem solving approaches to systems thinking and collaborative problem solving. To do so successfully means we will need to reinforce those institutions necessary for this task.

We need to be able to unmask and tackle the political economies that are drivers of inequalities at the national level otherwise we will not be able to guarantee a regional integration process that is truly people centred and sustainable, one that is transformative for the lives and choices of East Africans.

Cui bono? An agenda for active policy engagement

There are many entry points that could inform the policy process that seeks to address the imbalances caused the by the existing political economy. Whereas the report has taken liberty to point out some areas of possible intervention, it does not point out specific policy cures. This would detract from the purpose of this publication as we would not have the space to explore the complexities that each individual intervention would likely have to address. Nonetheless, they are offered as a point of departure for policy conversations with a view that conversations building on these possible intervention areas would clarify not only the technical aspects involved, but also be more specific in identifying beneficiaries of these actions.